Carrots, sticks, and AI: How can businesses tackle evolving Scope 3 emissions?

Emissions from sprawling supply chains remain arguably the most difficult decarbonisation challenge for businesses looking to deliver on their net zero targets. One recent report suggested UK companies are "nowhere near" meeting Scope 3 emissions targets, with just six per cent on track to meet or exceed stated goals. There are growing fears that sluggish progress in tackling value chains that represent up to 95 per cent of emissions generated by UK listed companies derail the economy-wide net zero transition. For many organisations, Scope 3 emissions continue to represent both a blind spot and barrier to progress as the clock ticks down towards rapidly approaching interim emissions targets. However, there are also emerging pockets of best practice that demonstrate how action to tackle value chain emissions can both accelerate decarbonisation efforts and deliver a range of commercial benefits. 

Last week, BusinessGreen's latest Spotlight webinar brought together leading experts to discuss how companies can better track and report on Scope 3 emissions, work with suppliers and customers more effectively to drive down emissions, and keep ahead of evolving due diligence and reporting rules. Hosted in association with climate change consultancy The Carbon Trust, Spotlight on Supply Chains: Best practices for tackling Scope 3 emissions explored why tackling supply chain emissions remain so challenging and how a growing number of businesses are grasping the nettle with innovative new approaches.

Scope 3 emissions the 'trickiest' challenge

For Alex Kazaglis, chief strategy and transformation officer at the Science Based Targets initiative (SBTi), the standard way for a business to think about their carbon emissions is to divide between those they can directly influence and those that fall outside organisational boundaries. These emissions commonly grouped as Scope 1 emissions that come directly from a company's buildings or vehicles, for example; Scope 2 emissions arising from energy use; and then Scope 3, which Kazaglis describes as "everything else", including emissions from the sourcing of raw materials, the manufacturing of products in the supply chain, the use of products or services by customers, and any emissions arising from a product's end of life. "For most companies, Scope 3 is by far the largest category, at 70 to 90 per cent of total emissions, and the trickiest," said Kazaglis.

As an example, Tracy Pellett, sustainability and business transformation director at Specsavers, confirmed the optician classifies 95 per cent of its carbon emissions as Scope 3. "It's a significant part of our decarbonisation agenda," she said. "In particular, as we are seeing more climate change implications affecting our supply chain and our business."

Ed Green, sustainability director at Grosvenor Property UK, similarly revealed how the property giant's sprawling Scope 3 emissions stem from the development and operation of around seven million square feet of commercial and residential space in London, servicing more than 1,000 tenants, as well as other assets across the country. The most significant of these are what he describes as "development emissions" from both major projects and smaller refresh programmes. However, on-going contracts with service providers such as cleaners are also a significant source of Scope 3 emissions.

Tom Cumberlege, director of transition strategy at The Carbon Trust, summarised how the initial challenge when trying to tackle these emissions is securing access to reliable data. While emissions from Scope 1 and 2 emissions can be relatively easily calculated from energy meters or mileage data, Scope 3 emissions data tends to be far less readily accessible. "You have to collect information from your procurement teams," he said. "You have to think about how you're distributing, transporting, and packaging your products if you're a manufacturer, or you have to think about your investments if you're in the financial services sector. It covers a huge number of different sub-categories."

Don't seek 'perfection'

Accounting for these emissions is inherently complex. Kazaglis explained that spend-based or activity-based measurements can provide "credible" first estimates, while compliance with methodologies such as the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Standard should offer a crucial foundation. But sourcing data deep within supply chains is always challenging and there can be trade-offs to be made between speed and granular accuracy when calculating emissions using average emissions factors and industry estimates. 

"It's important to understand where difficulties are likely to pop up," said Kazaglis, suggesting firms should distinguish between areas they can directly measure with a high degree of accuracy, like business travel, and areas where a less granular approach can still give you the information you need to identify "hotspots" where emissions are most heavily clustered. "Focus energy in those areas," he advised. "Set a baseline year, document your methodology, and be consistent over time, so that you can track your progress."

Pellett shared how Specsavers measured its Scope 3 footprint by initially tracking spend data. "We realised that that wasn't the ideal in terms of directing us towards where we needed to focus our efforts," she said. "We had a bit of a false start". That false start was quickly rectified, with the company developing a new approach that broadened the scope of its data gathering to include product life cycle analyses covering material use. "Through our life cycle analysis, we've been able to look at what would be used to construct a frame, and therefore what the carbon emissions would typically be," Pellett explained, warning that while data quality is important, practitioners should not fixate on seeking "perfection".  "If you do, you're never going to take action," she adds.

Proactively building data 'confidence'

The Carbon Trust's Cumberlege stressed the most crucial consideration for Scope 3 data is having confidence that what is being gathered can be used to reliably track progress and effectively influence decision making. He highlighted the consultancy's work with Carlsberg, which has drastically improved its supply chain data operation since 2016, when around 40 per cent of data was primary information from suppliers.

"We were working for many years on a regular basis, engaging their suppliers to help them define methodologies for collecting better data," he explained. "It's important because large organisations like Carlsberg want to be able to report progress - and you can't report progress unless you've got a better degree of confidence. You can collect all sorts of information, but the challenge for many organisations is interpreting that and then using that data not only to report emissions confidently, but to inform decision making."

When Grosvenor last reported in 2024, just under half of its supply chain emissions came from businesses that held their own science-based targets. "That gives us a lot of confidence," said Green, who stressed how the firm navigated "quite a steep curve" to get suppliers on board with their own emissions goals. "We work with a lot of SMEs, many of whom have great aspirations, but simply don't have the bandwidth to go through the process and understand what needs to be done to secure a science-based target," he explained. "We've set our own targets and goals and are seeking to work with businesses that are going to come with us on the journey of decarbonising. We aren't just going to set targets and sit back and expect people to jump through hoops."

How much data do you need?

Exactly how far back historic Scope 3 data needs to stretch, and the desired depth and breadth of coverage, is not an exact science. Pellett argued that while visibility into tier one suppliers is "essential", it is up to companies to determine how far they deploy resources beyond direct supplier relationships as they look to quantify their emissions footprint.

"I think the honest answer is most companies can only meaningfully engage tier one - their direct suppliers - with selected reach into tier two in certain areas," agreed Kazaglis. "However, I was discussing with a business, and most of their emissions are beyond the tier one, and that's their priority. More and more, I'm speaking to businesses looking much further down the chain. I think it's that progression that we're seeing as this practice matures, as the data matures, and as businesses better understand what it takes to become resilient."

Carrots, sticks, and supplier selection

Once gathered, data can be used to both as the basis for emissions targets that align with climate science, and to identify "hotspots" where interventions and concentrating resources can have the greatest impact. "We don't have the resources to go deep into every single aspect of the supply chain, so it's all about where you can make meaningful impacts that are going to give you the biggest change," said Pellett.

Identifying hot spots is, however, only part of the battle, given emissions may be occurring several tiers upstream or downstream, and are therefore likely to be hard to influence. The interconnected nature of the modern economy means almost every business is likely to have a chunk of its supply chain emissions concentrated in the mining, shipping, or farming industries, for example - sectors that are notoriously difficult to decarbonise. "Not all of your Scope 3 footprint is equal," said Kazaglis. "The data should tell you which suppliers, sectors, or geographies matter, and what measures might be helpful - whether it's carrots or sticks that might be required, or a combination of both."

Pellett revealed how Specsavers has worked to segment its supply chain and embed both standards to follow and expectations around decarbonisation into supplier contracts, as well as taking incremental steps such as sharing best practices in areas such as switching to clean energy. "We recognise that you can't eat the whole Scope 3 elephant at once," she said. "From our insights, we know that we can make significant step changes by getting our suppliers to switch to renewables. That sounds easy, but it's not. There's a whole collaboration piece in that."

Grosvenor has also developed an approach Green refers to as "sustainable supplier selection" based on the notion of not necessarily putting additional requirements into procurement processes, but instead ensuring "better questions are being asked", so better decisions get made. "There is a host of decisions that feed into which suppliers you go with, but I think that if you don't ask questions, you'll never know who is most aligned to your own value set," he said. "The initial questions - 'do you have a science-based target', 'do you have carbon targets', for example - aren't red lines. If the answer is 'no', fine, but what we found very helpful are subsequent questions like, 'what have you done over the last few years to improve your emissions intensity'? You can quite quickly identify who is really committed. The best businesses to work with are the ones who've made hard and fast targets and commitments - but not everyone can possibly have done that, and they shouldn't be excluded. The question is how do you build a broader picture through the selection process?"

For Green, finding a balance between 'carrot' and 'stick' when working to decarbonise sprawling and complex supply chains is essential. "It's about gaining as much data as you can, using that, and taking your role seriously as the buyer," he said. "Ultimately you are also in charge of where you procure and how your organisation lives by its values and procures accordingly."

Making a business case for supply chain decarbonisation

For Cumberlege, while procurement teams offer sustainability practitioners an often "overlooked" route for tackling Scope 3 emissions, it is crucial to approach them with a convincing and compelling business case. Sustainability executives need to be able to explain the costs and risks of not reducing emissions and being more exposed to energy price volatility, as well as the benefits that could come from collectively sourcing clean power within a supply chain or investing in energy or resource efficiency, for example.

"It's really important to build that value proposition within the organisation so the different functions of your business really understand why they need to go to the additional mile," Cumberlege said "This is an additional ask in many cases for suppliers to provide that information, so getting that right - both internally and then also persuading the supply chain in terms of benefits - is super important. Then you can start to look at further collaborative efforts in terms of buying clubs and so forth."

As an example, Cumberlege reflected on The Carbon Trust's efforts to build the business case for emerging lower carbon construction materials in the offshore wind sector. "We worked with industry players across that sector to help understand how best to firstly measure and identify the most cost-effective measures for decarbonisation," he said. It is another example of how co-operation within a sector can help both identify best practices and emerging low carbon offerings, as well as create buying signals for suppliers.  

At Specsavers, Pellett explained that sustainability is now seen as a "key deliverable", with resource efficiency, circularity, and re-use frames all regarded as central to long-term business success. "Sustainability is one of our long-term framework priorities," she said. "We recognise that we've got to grow with decarbonisation in mind - and that's quite challenging. But equally it's an exciting opportunity."

Making sure the links between decarbonisation and commercial value are understood and recognised at the most senior level in an organisation was Pellett's top tip for sustainability practitioners looking to tackle Scope 3 emissions. If the board prioritises sustainability that quickly filters through to procurement, supply chain management, and due diligence teams. "You need to look at the broader commercial values, risks and opportunities, but not just in the short term," said Pellett. "If you're too short termist, it doesn't allow the business to see that that value generation over time."

Cumberledge added that it is also crucial to ensure value propositions not only engage boards, procurement teams and suppliers, but stretch beyond emissions to consider risk mitigation and climate resilience. "There's a huge crossover between financial value in the supply chain and carbon emissions," he said. "You also layer nature dependencies and social issues on top of that."

Using AI to keep up

Pellett also revealed how the current iteration of Specsavers' carbon reporting tool is harnessing AI technology to generate supply chain insights more quickly as the profile of supply chain emissions evolves. "Historically we'd have a data analyst who would be trawling through data, trying to make sense of it, and looking for irregularities, whereas the technology does a lot of that for you," she said. "This will just get more and more mature as time kind of goes on. I think the most exciting bit is then how that translates into insights and then into action. Scope 3 is not static, it's not a one-time-only exercise, it's going to continually evolve."

The SBTI's Kazaglis suggested AI could prove one of the biggest near-term opportunities for tackling Scope 3 emissions, but caveats that it is important to be clear about what AI tools can do well, rather than using the technology for the sake of it. "It's great for spend data classification," he offered as an example. "It's great for supplier data extraction. One of the bottlenecks was the ability to collect, classify, and verify data, and AI really helps to democratise that as a much larger set of businesses can get involved. The 'watch out' is its garbage in, garbage out. You still have to collect good data."

AI has the potential to streamline supply chain data processes and risk management efforts, but tackling Scope 3 emissions is in many ways still a very human activity, involving understanding the needs of a business, the priorities of suppliers and partners, and the carrots and sticks that can be deployed to drive investment in the clean technologies and more sustainable business practices that are essential for making net zero supply chains a reality.    

BusinessGreen's webinar - Spotlight on Supply Chains: Best practices for tackling Scope 3 emissions - was hosted in association with The Carbon Trust, and can be watched back in full here.